[PDF] Guidelines on Corporate Governance Principles for Banks

View - Download Guidelines on Corporate Governance Principles for Banks

Previous PDF

Next PDF

Basel Committee

on Banking Supervision

Guidelines

Corporate governance

principles for banks

July 2015

This publication is available on the BIS website ( www.bis.org).

© Bank for International Settlements 2015. All rights reserved. Brief excerpts may be reproduced or

translated provided the source is stated. ISBN

978-92-9197-130-5 (print)

ISBN

978-92-9197-126-8 (online)

Contents

Glossary ................................................................................................................................................................................................ 1

Corporate governance principles for banks ........................................................................................................................... 3

Introduction ................................................................................................................................................................................ 3

Jurisdictional differences ....................................................................................................................................................... 5

Applicability, proportionality and differences in governance approaches ....................................................... 6

Principle 1: Board's overall responsibilities .................................................................................................................. 8

Principle 2: Board qualifications and composition .................................................................................................. 13

Principle 3: Board's own structure and practices ..................................................................................................... 15

Principle 4: Senior management .................................................................................................................................... 20

Principle 5: Governance of group structures ............................................................................................................. 22

Principle 6: Risk management function ....................................................................................................................... 25

Principle 7: Risk identification, monitoring and controlling ................................................................................ 27

Principle 8: Risk communication .................................................................................................................................... 30

Principle 9: Compliance ...................................................................................................................................................... 31

Principle 10: Internal audit ................................................................................................................................................ 32

Principle 11: Compensation ............................................................................................................................................. 34

Principle 12: Disclosure and transparency .................................................................................................................. 36

Principle 13: The role of supervisors ............................................................................................................................. 38

Corporate governance principles for banks iii

Glossary

b ank or banking organisation A bank, bank holding company or other company considered by banking supervisors to be the parent of a banking group under applicable national law as determined to be appropriate by the entity"s national supervisor.

board of directors, board The body that supervises management. The structure of the board differs among

countries 1 The use of “board" throughout this paper encompasses the different national models that exist and should be interpreted in accordance with applicable law within each jurisdiction. control functions Those functions that have a responsibility independent from management to provide objective assessment, reporting and/or assurance. This includes the risk management function, the compliance function and the internal audit function. corporate governance A set of relationships between a company"s management, its board, its shareholders and other stakeholders which provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance 2

It helps define the way authority and

responsibility are allocated and how corporate decisions are made. duty of care The duty of board members to decide and act on an informed and prudent basis with respect to the bank. Often interpreted as requiring board members to approach the affairs of the company the same way that a “prudent person" would approach his or her own affairs. 2 duty of loyalty The duty of board members to act in good faith in the interest of the company. The duty of loyalty should prevent individual board members from acting in their own interest, or the interest of another individual or group, at the expense of the company and shareholders. 2 executive director In jurisdictions where this is permitted, a member of the board (eg director) who also has management responsibilities within the bank. 3

A non-executive director

is a member of the board who does not have management responsibilities within the bank. independent director For the purposes of this paper, a non-executive member of the board who does not have any management responsibilities within the bank and is not under any other undue influence , internal or external, political or ownership, that would impede the board member's exercise of objective judgment. 3

internal control system A set of rules and controls governing the bank"s organisational and operational

structure , including reporting processes, and functions for risk management, compliance and internal audit. risk appetite: The aggregate level and types of risk a bank is willing to assume, decided in advance and within its risk capacity, to achieve its strategic objectives and business plan. 4

risk appetite framework (RAF) The overall approach, including policies, processes, controls and systems, through

1

See paragraph 15.

2

See the glossary of corporate governance-related terms in Organisation for Economic Co-operation and Development

(OECD), Experiences from the Regional Corporate Governance Roundtables, 2003. 3 See Financial Stability Board (FSB), Thematic review on risk governance, February 2013. 4 See FSB, Principles for an effective risk appetite framework, November 2013.

Corporate governance principles for banks 1

which risk appetite is established, communicated and monitored. It includes a risk appetite statement, risk limits and an outline of the roles and responsibilities of those overseeing the implementation and monitoring of the RAF.

The RAF should

consider material risks to the bank, as well as to its reputation vis-à-vis policyholders, depositors, investors and customers. The RAF aligns with the bank"s strategy. 5

risk appetite statement (RAS) The written articulation of the aggregate level and types of risk that a bank will

accept, or avoid, in order to achieve its business objectives. It includes quantitative measures expressed relative to earnings, capital, risk measures, liquidity and other relevant measures as appropriate. It should also include qualitative statements to address reputation and conduct risks as well as money laundering and unethical practices. 6 risk capacity The maximum amount of risk a bank is able to assume given its capital base, risk management and control capabilities as well as its regulatory constraints. risk culture A bank"s norms, attitudes and behaviours related to risk awareness, risk-taking and risk management, and controls that shape decisions on risks. Risk culture influences the decisions of management and employees during the day-to-day activities and has an impact on the risks they assume. 7

risk governance framework As part of the overall corporate governance framework, the framework through

which the board and management establish and make decisions about the bank"s strategy and risk approach; articulate and monitor adherence to risk appetite and risk limits vis-à-vis the bank"s strategy; and identify, measure, manage and control risks. 8 risk limits Specific quantitative measures or limits based on, for example, forward-looking assumptions that allocate the bank"s aggregate risk to business lines, legal entities as relevant, specific risk categories, concentrations and, as appropriate, other measures. 4 risk management The processes established to ensure that all material risks and associated risk concentrations are identified, measured, limited, controlled, mitigated and reported on a timely and comprehensive basis. risk profile Point-in-time assessment of a bank"s gross risk exposures (ie before the application of any mitigants) or, as appropriate, net risk exposures (ie after taking into account mitigants) aggregated within and across each relevant risk category based on current or forward-looking assumptions. 4 5

See FSB (November 2013), op cit.

6

See FSB, (November 2013), op cit.

7

See FSB, Guidance on supervisory interaction with financial institutions on risk culture, April 2014.

8

See FSB (February 2013), op cit.

2 Corporate governance principles for banks

Corporate governance principles for banks

Introduction

1. Effective corporate governance is critical to the proper functioning of the banking sector and

the economy as a whole. Banks perform a crucial role in the economy by intermediating funds from

savers and depositors to activities that support enterprise and help drive economic growth. Banks" safety

and soundness are key to financial stability, and the manner in which they conduct their business, therefore , is central to economic health. Governance weaknesses at banks that play a significant role in the financial system can result in the transmission of problems across the banking sector and the economy as a whole.

2. The primary objective of corporate governance should be safeguarding stakeholders" interest in

conformity with public interest on a sustainable basis. Among stakeholders, particularly with respect to

retail banks, shareholders" interest would be secondary to depositors' interest.

3. Corporate governance determines the allocation of authority and responsibilities by which the

business and affairs of a bank are carried out by its board and senior management, including how they:

set the bank's strategy and objectives; select and oversee personnel; operate the bank's business on a day-to-day basis;

protect the interests of depositors, meet shareholder obligations, and take into account the interests of other recognised stakeholders;

align corporate culture, corporate activities and behaviour with the expectation that the bank will operate in a safe and sound manner, with integrity and in compliance with applicable laws and regulations; and

establish control functions.

4. The Basel Committee's guidance draws from principles of corporate governance published by

the Organisation for Economic Co-operation and Development (OECD). The OECD's widely accepted and long-established principles aim to assist governments in their efforts to evaluate and improve their frameworks for corporate governance and to p rovide guidance for participants and regulators of financial markets.

5. Supervisors have a keen interest in sound corporate governance, as it is an essential element in

the safe and sound functioning of a bank and may adversely affect the bank's risk prof ile if not operating effectively. Well governed banks contribute to the maintenance of an efficient and cost-effective supervisory process, as there is less need for supervisory intervention.

6. Sound corporate governance may permit the supervisor to place more reliance on the bank's

internal processes. In this regard, supervisory experience underscores the importance of having the

appropriate levels of authority, responsibility, accountability, and checks and balances within each bank,

including those of the board of directors but also of senior management and the risk, compliance and internal audit functions.

7. The Basel Committee's October 2010 Principles for enhancing corporate governance represented

a consistent development in the Committee's long-standing efforts to promote sound corporate

governance practices for banking organisations. The 2010 principles sought to reflect key lessons from

Corporate governance principles for banks 3

the global financial crisis that began in 2007, and enhance how banks govern themselves and how supervisors oversee this critical area.

8. Since 2010, the Committee and its member jurisdictions have witnessed banks strengthening

their overall governance practices and supervisors enhancing their oversight processes. In general, banks exhibit a better understanding of the important elements of corporate governance such as effective board oversight, rigorous risk management, strong internal controls, compliance and other related areas. In addition, many banks have made progress in assessing collective board skills and qualifications, instituting standalone board risk committees, establishing and elevating the role of chief risk officer (CRO), and integrating discussions between board audit and risk committees. National authorities have taken measures to improve regulatory and supervisory oversight of corporate and risk governance at banks. These measures include developing or strengthening existing regulation or guidance, raising supervisory expectations for the risk management function, engaging more frequently with the board and management, and assessing the accuracy and usefulness of the information provided to the board.

9. In order to assess the progress of national authorities and the banking industry in the area of

risk governance since the global financial crisis, the Financial Stability Board (FSB) issued a Thematic

review on risk governance in February 2013 as part of its series of peer reviews. The peer review found

that financial institutions and national authorities have taken measures to improve risk governance. However, more work is needed by both national authorities and banks to establish effective risk governance frameworks and to enumerate expectations for third-party reviews of the framework. Banks also need to enhance the authority and independence of CROs. National authorities need to strengthen their ability to assess the effecti veness of a bank's risk governance and its risk culture and should engage more frequently with the board and its risk and audit committees. 10 In the light of ongoing developments in corporate governance, and to take account of the FSB peer review recomme ndations and other recent papers addressing corporate governance issues, the Committee has decided to revisit the 2010 guidance. 9 11 One of the primary objectives of this revision is to explicitly reinforce the collective oversight and risk governance responsibilities of the board. Another important objective is to emphasise key

components of risk governance such as risk culture, risk appetite and their relationship to a bank's risk

capacity. The revised guidance also delineates the specific roles of the board, board risk committees,

senior management and the control functions, including the CRO and internal audit. Another key emphasis is strengthening banks' overall checks and balances.

12. Importantly, the FSB underscored the critical role of the board and the board risk committees in

strengthening a bank's risk governance. This includes greater involvement in evaluating and promoting a

strong risk culture in the organisation; establishing the organisation's risk appetite and conveying it

through the risk appetite statement (RAS); and overseeing management's implementation of the risk appetite and overall governance framework. 9

The FSB recommended that member jurisdictions strengthen their regulatory and supervisory guidance for financial

institutions, in particular for systemically important financial institutions (SIFIs), on sound risk governance practices. In

addition, the FSB recently issued additional guidance on risk appetite frameworks and supervisory assessments of risk culture.

Work by the Joint Forum and others since 2010 has also increased the focus on the challenges of supervising groups and

conglomerates. This, in turn, has raised important questions about group governance, including expectations for parent

company and subsidiary governance and how supervisors can best supervise these institutions.

4 Corporate governance principles for banks

13. The increased focus on risk and the supporting governance framework includes identifying the

responsibilities of different parts of the organisation for addressing and managing risk. Often referred to

as the "three lines of defence", each of the three lines has an important role to play. The business line - the first line of defence - has "ownership" of risk, whereby it acknowledges and manages the risk that it

incurs in conducting its activities. The risk management function is responsible for further identifying,

measuring, monitoring and reporting risk on an enterprise-wide basis as part of the second line of

defence, independently from the first line of defence. The compliance function is also deemed part of

the second line of defence . The internal audit function is charged with the third line of defence,

conducting risk-based and general audits and reviews to provide assurance to the board that the overall

governance framework, including the risk governance framework, is effective and that policies and processes are in place and consistently applied. 14 Among their other responsibilities, board members and senior management are expected to define conduct risk based on the context of the bank's business. 10

Cases of misconduct have been

identified as stemming from: the mis-selling of financial products to retail and business clients; the violation of national and international rules (tax rules, anti-money laundering rules, anti- terrorism rules, economic sanctions, etc); and the manipulation of financial markets - for instance, the manipulation of Libor rates and foreign exchange rates.

The board should set the "ton

e at the top" and oversee management's role in fostering and maintaining a sound corporate and risk culture. Management should develop a written code of ethics or a code of conduct. Either code is intended to foster a culture of honesty and accountability to protect the interest of its customers and shareholders.

Jurisdictional differences

15. This document is intended to guide the actions of board members, senior managers, control

function heads and supervisors of a diverse range of banks in a number of countries with varying legal

and regulatory systems, including both Committee member and non-member jurisdictions. The

Committee recognises that there are significant differences in the legislative and regulatory frameworks

across countries which may restrict the application of certain principles or provisions therein. Each

jurisdiction should apply the provisions as the national authorities see fit. In some cases, this may involve legal change. In other cases, a principle may require slight modification in order to be implemented. 10

See also Group of Thirty, Banking Conduct and Culture: a Call for Sustained and Comprehensive Reform, 2015 (forthcoming),

and European Systemic Risk Board, Report on misconduct risk in the banking sector, June 2015.

Corporate governance principles for banks 5

Applicability, proportionality and differences in governance approaches

16. The implementation of these principles should be commensurate with the size, complexity,

structure, economic significance, risk profile and business model of the bank and the group (if any) to

which it belongs. This means making reasonable adjustments where appropriate for banks with lower

risk profiles, and being alert to the higher risks that may accompany more complex and publicly listed

institutions. 11 SIFIs are expected to have in place the corporate governance structure and practices commensurate with their role in and potential impact on national and global financial stability.

17. The principles set forth in this document are relevant regardless of whether or not a jurisdiction

chooses to adopt the Committee"s regulatory framework. The board and senior management at each bank have an obligation to pursue good governance.

18. This document refers to a governance structure composed of a board of directors and senior

management. Senior management is sometimes called the executive committee, the executive board or the management board. Some countries use a formal two-tier structure, where the supervisory function of the board is performed by a separate entity known as a supervisory board or audit and supervisory

board, which has no executive functions. Other countries use a one-tier structure in which the board of

directors has a broader role. Still other countries have moved or are moving to a mixed approach that

discourages or prohibits executives from serving on the board of directors or limits their number and/or

requires the board and board committees to be chaired only by non-executive or independent board members. Some countries also prohibit the chief executive officer (CEO) from serving as chair of the board of directors or even from being part of the board of directors.

19. Owing to these differences, this document does not advocate any specific board or governance

structure. The terms “board of directors" and “senior management" are used mainly from the perspective

of a one-tier board structure. These terms should be interpreted throughout the document in accordance with the applicable law within each jurisdiction. Recognising that different structural

approaches to corporate governance exist across countries and that these structures evolve over time,

this document encourages legislators, supervisors, banks and others to frequently review their practices so as to strengthen checks and balances and sound corporate governance under diverse structures. The

application of corporate governance standards in any jurisdiction is naturally expected to be pursued in

a manner consistent with applicable national laws, regulations and codes (eg taking into consideration

the existence of oversight boards in some jurisdictions). 20 One fundamental corporate governance issue in respect of publicly listed companies is shareholder rights. Such rights are not the primary focus of this guidance and are addressed in the corporate governance principles issued by the OECD. 12

However, the Committee recognises the

importance of shareholder rights and of responsible shareholder engagement. The Committee also

recognises the importance of exercise of shareholder rights, particularly when certain shareholders have

the right to have a representative on the board. In such cases, the suitability of the appointed board

11

The Committee recognises that some countries have governance, accounting and auditing standards which may be more

extensive and prescriptive for larger or for publicly listed institutions than the principles set forth in this document.

12

Organisation for Economic Co-operation and Development, Principles of corporate governance, 2004, available at

www.oecd.org/corporate/ca/corporategovernanceprinciples/31557724.pdf. In 2014, the OECD launched a review of the

principles to ensure their continuing high quality, relevance and usefulness, taking into account recent developments in the

corporate sector and capital markets.

6 Corporate governance principles for banks

member is as critical as their awareness of the responsibility to look after the interests of the bank as a

whole, not just of the shareholders. 21
Effective implementation of sound corporate governance requires relevant legal, regulatory and

institutional foundations. A variety of factors, including the system of business laws, stock exchange rules

and accounting standards, can affect market integrity and systemic stability. Such factors, however, are

often outside the scope of banking supervision. Supervisors are nevertheless encouraged to be aware of

legal and institutional impediments to sound corporate governance, and to take steps to foster effective

foundations for corporate governance where it is within their legal authority to do so. Where it is not,

supervisors may wish to consider supporting legislative or other reforms that would allow them to have

a more direct role in promoting or requiring sound corporate governance. 22
The principles of sound corporate governance should also be applied to state-owned or state- supported banks, including when such support is temporary. 13 13

See also Organisation for Economic Co-operation and Development, Guidelines on corporate governance of state-owned

enterprises, available at www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm.

Corporate governance principles for banks 7

Principle 1

: Board's overall responsibilities

The board has overall responsibility for

the bank, including approving and overseeing management"s implementation of the bank"s strategic objectives, governance framework and corporate culture.

Responsibilities of the board

23. The board has ultimate responsibility for the bank's business strategy and financial soundness,

key personnel decisions, internal organisation and governance structure and practices, and risk management and compliance obligations. The board may delegate some of its functions, though not its responsibilities, to board committees where appropriate.

24. The board should establish and be satisfied with the bank's organisational structure. This will

enable the board and senior management to carry out their responsibilities and facilitate effective decision-making and good governance. This includes clearly laying out the key responsibilities and authorities of the board itself and of senior management and of those responsible for the risk management and control functions.

25. The members of the board should exercise their "duty of care" and "duty of loyalty" to the bank

under applicable national laws and supervisory standards.

26. Accordingly, the board should:

14 actively engage in the affairs of the bank and keep up with material changes in the bank's business and the external environment as well as act in a timely manner to protect the long- term interests of the bank; oversee 15 the development of and approve the bank"s business objectives and strategy and monitor their implementation; play a lead role in establishing the bank's corporate culture and values; oversee implementation of the bank's governance framework and periodically review that it remains appropriate in the light of material changes to the bank's size, complexity, geographical footprint, business strategy, markets and regulatory requirements; Establish, along with senior management and the CRO, the bank's risk appetite, taking into account the competitive and regulatory landscape and the bank's long-term interests, risk exposure and ability to manage risk effectivel y; oversee the bank's adherence to the RAS, risk policy and risk limits; approve the approach and oversee the implementation of key policies pertaining to the bank's capital adequacy assessment process, capital and liquidity plans, compliance policies and obligations, and the internal control system; 14

The Committee recognises that in some jurisdictions standards derived from general corporate law govern these matters and

that national supervisory authorities take appropriate account of these standards while implementing the principles therein.

15

In the context of board responsibilities, the term "oversee" should be understood to mean "oversee and be satisfied with".

8 Corporate governance principles for banks

require that the bank maintain a robust finance function responsible for accounting and financial data; approve the annual financial statements and require a periodic independent review of critical areas; approve the selection and oversee the performance of the CEO, key members of senior management and heads of the control functions; oversee the bank's approach to compensation, including monitoring and reviewing executive compensation and assessing whether it is aligned with the bank's risk culture and risk appetite; and oversee the integrity, independence and effectiveness of the bank's policies and procedures for whistleblowing.

27. The board should ensure that transactions with related parties (including internal group

transactions) are reviewed to assess risk and are subject to appropriate restrictions (eg by requiring that

such transactions be conducted on arm's length terms) and that corporate or business resources of the bank are not misappropriated or misapplied.

28. In discharging these responsibilities, the board should take into account the legitimate interests

of depositors, shareholders and other relevant stakeholders. It should also ensure that the bank maintains an effective relationship with its supervisors.

Corporate culture and values

29. A fundamental component of good governance is a corporate culture of reinforcing

appropriate norms for responsible and ethical behaviour. These norms are especially critical in terms of a

bank"s risk awareness, risk -taking behaviour and risk management (ie the bank"s “risk culture"). 30
In order to promote a sound corporate culture, the board should reinforce the “tone at the top"quotesdbs_dbs27.pdfusesText_33

[PDF] Boarding instructions Consignes d`embarquement www - France

[PDF] boarding pass club - France

[PDF] BOAS Fernand - France

[PDF] Boast Busters Jeverland - Squash

[PDF] Boat Cover Support System - Mexique Et Amérique Centrale

[PDF] boat funboard

[PDF] boat lift used - Anciens Et Réunions

[PDF] Boat Loader - Mexique Et Amérique Centrale

[PDF] Boat trailer - Yachtseller

[PDF] BOAT TYPE BOAT BUILDER Facnor Jib Furler Enrouleur de GV - Anciens Et Réunions

[PDF] Boat: CONSTRUCTIONS NAUTIQUES MARSEILLAISES - Anciens Et Réunions

[PDF] Boating business for sale - Las Terrenas real estate at Samana - Anciens Et Réunions

[PDF] Boating, fishing and diving - Parc national de Port-Cros - Anciens Et Réunions

[PDF] BOB 50 : Manuel Campagnes de rappels de

[PDF] BOB at « la Cité des Sciences » (Science museum, Paris)